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On the relationship between sectorial and institutional structural changes
Author(s) -
Bethencourt Carlos,
PereraTallo Fernando
Publication year - 2020
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12288
Subject(s) - structural change , productivity , economics , agriculture , institutional change , economic system , capital (architecture) , mechanism (biology) , structural adjustment , market economy , economic growth , ecology , political science , history , philosophy , archaeology , public administration , epistemology , biology
Successful development processes involve not only ‘sectorial structural change’, shifts of factors between different productive sectors, but also, ‘institutional structural change’, shifts of factors from unproductive activities (predation) to productive ones. This paper analyzes the feedback process between the sectorial and the institutional structural changes in a model in which the labor share in agriculture is lower than in other sectors. Along the transition sectorial structural change emerges: employment in agriculture declines. Consequently, total labor share increases, raising the reward for working (while discouraging predation) and so, fostering institutional structural change. This, in turn, encourages capital accumulation, promoting sectorial structural change. This feedback mechanism widens differences in productivity and institutions among countries. Whereas zero‐cost policies aimed to build institutions have positive effects, costly policies have uncertain effects due to complex feedback mechanisms.